Things You Must Know Before Ralph Lauren's (RL) Q3 Earnings

Ralph Lauren Corporation (NYSE:RL) is slated to release third-quarter fiscal 2020 results on Feb 4, before the opening bell. In the last reported quarter, the premium designer of lifestyle products delivered a positive earnings surprise of 6.7%. Moreover, its bottom line beat the Zacks Consensus Estimate by 9.1%, on average, over the trailing four quarters.

The Zacks Consensus Estimate for the company’s fiscal third-quarter earnings stands at $2.43, suggesting growth of 4.7% from the year-ago quarter’s reported figure. The consensus mark has been unchanged in the past 30 days. For fiscal third-quarter revenues, the consensus mark is pegged at $1.71 billion, suggesting a 0.7% decline from the prior-year quarter’s reported figure.

Key Factors to Note

Ralph Lauren’s top and bottom lines have been gaining from a stringent cost discipline along with continued investment in brand elevation and other strategic endeavors — including “Next Great Chapter”. Additionally, strength in the company’s International business and focus on digital expansion have been aiding the top line.

In the last earnings call, management had predicted incrementally stronger average unit retail (AUR) for the second half of fiscal 2020 compared with the first half. The improvement will likely be fueled by expected price increases in select channels and categories as well as accelerated product mix shifts. Moreover, AURs will likely benefit from the ongoing efforts to reduce promotions that will improve the quality of sales and elevate the brand globally across every distribution channel.

However, disruptions in the Hong Kong business due to heavy protests in the region have been affecting the company’s revenues in Asia. This is likely to get reflected in the Hong Kong business results for the third quarter of fiscal 2020. Moreover, it expects soft wholesale business and lower digital sales to international shoppers in the United States to affect revenues for the North America business in the quarters ahead.

For the fiscal third quarter, management envisions flat net revenues on a constant currency basis. Moreover, operating margin is anticipated to be between flat and down 20 bps in constant currency.

Furthermore, the company expects currency headwinds to persist throughout fiscal 2020. For the fiscal third quarter, currency headwinds are expected to mar revenue growth by 70-90 bps.

Zacks Model

Our proven model does not conclusively predict an earnings beat for Ralph Lauren this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that’s not the case here. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Ralph Lauren carries a Zacks Rank #2 but an Earnings ESP of -0.08%.

Stocks With Favorable Combination

Here are some companies that you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

Acushnet Holdings Corp. (NYSE:GOLF) has an Earnings ESP of +1.10% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Crocs, Inc. (NASDAQ:CROX) has an Earnings ESP of +30.00% and a Zacks Rank #3.

PVH Corp (NYSE:PVH) has an Earnings ESP of +0.55% and a Zacks Rank #3.

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